EDITOR'S CHOICE -- SCOTT SUTTELL

Online merchants keep chipping away at brick-and-mortar retailers

Blog Entry: December 26, 2012 9:33 AM | Author: SCOTT SUTTELL

Ahead of what's supposed to be a pretty heavy snowstorm, this will be quick:

Times are tough for traditional retailers, and they're not likely to get any easier as Internet shopping becomes more popular, according to this treatise by a retail expert that includes a comment from Daniel Hurwitz, president and CEO of DDR Corp.

The author, Jeff Jordan, is a partner at venture capital firm Andreessen Horowitz who previously served as president and CEO of OpenTable, which he took public in 2009. Before OpenTable, he was president of PayPal, so he understands the retail landscape.

“Online retailers are relentlessly gaining share in many retail categories, and offline players are fighting for progressively smaller pieces of the retail pie,” he says. Mall and shopping center stalwarts “are closing stores by the thousands, and there are few large physical chains opening stores to take their place,” Mr. Jordan writes. “Yet the quantity of commercial real estate targeting retail continues to grow, albeit slowly. Rapidly declining demand for real estate amid growing supply is a recipe for financial disaster.”

He performs an analysis of the National Retail Federation's list of the Top 100 retailers in 2012, focusing on merchandise retailers that would likely be located in malls (removing grocery, drug, restaurant and online retailers). Mr. Jordan focused on three measures of retailer health: total sales growth, comp store sales growth and number of stores.

“The analysis doesn't paint a very pretty picture regarding the health of the leading physical retailers in the United States,” Mr. Jordan writes. “Total sales growth is mixed and is negative for 20% of the sample. Comp store sales growth — arguably the key measure of retailer health— is also mixed and a quarter of the sample is negative. And note that many of these sales results include the retailers' online segments, so the picture for their physical stores is even worse.”

On a positive note, he says most real estate professionals “understand that profound changes are afoot” and are trying to change the retail mix at their shopping centers and to downsize in smart ways.

Cliffs ranked No. 6 on the list, with the stock down 50% as of Dec. 21.

“In the first quarter, higher mining and transportation costs contributed to a decline in earnings, despite a boost in revenue,” the website notes. “The story hadn't improved much by the third quarter, when the company announced another round of miserable profits: $85 million for the quarter, down from $601 million the year before.”

In November, Goldman Sachs analysts downgraded the stock from hold to sell, and shares went down 12% in a single day, according to CNNMoney.com.

“Goldman analysts also noted that the company had repeatedly failed to hit its internal financial targets, and the chances that they'll start hitting those targets any time soon aren't particularly good,” according to the story. “A month later, Goldman issued a further warning about the firm's competition: China's ore producers could ratchet up production by 30% in 2013.”

TheAtlanticCities.com highlights a report from the Martin Prosperity Institute that rated and ranked U.S. metro areas primed for "converting the Grinch," or, as the site puts it “real-life Whovilles with demographic characteristics that could turn even the strongest-willed holiday-merriment-haters into jolly good fellows.”

To create the "Grinch Conversion Index," the institute considered seven key community characteristics, based on elements of the Dr. Seuss story. Among them were population density ("greater amount of merry people within an area"); costume rental stores per capita ("the Grinch can get his Santa disguise"); selected retail outlets per capita ("more presents for the Grinch to steal and eventually return"); musicians, singers, music directors and composers per capita ("to first annoy, then touch the Grinch's heart with singing"); and night-time light ("to draw the Grinch's attention").

By these (admittedly, probably nonsensical) standards, Trenton, N.J., took the top spot as the most likely city to convert a Grinch. Most of the top 10 are clustered in the northeastern part of the United States, and Cleveland is tied for fifth with New York City.

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